tv Nightly Business Report PBS June 24, 2013 4:30pm-5:01pm PDT
stock prices back to april levels. china gets the blame. why does that country matter so much to our markets and your money? >> controlling costs. how much will your insurer pay for an mri or a hip replacement? more and more carriers are capping their costs. how this big change in health care will affect you. and paula deen, head of a multimillion dollar culinary empire.what happens to the prods have fired her for racially insensitive remarks? all that and more tonight for monday june 24th. good evening, everyone. it was a nasty day in the stock market as investors wind down this final week of the second quarter. stocks dropped to a two-month low today, it could have been a lot worse. the dow was in the red all session long, swinging from an early decline of 248 points to just 25 points lower before
settling somewhere in the middle. at the close, the blue chip average was nearly 140 points lower, the nasdaq down 36, the s&p 500 off by 19 points. the reason for the selloff, worries about china's credit problem. something that could shock its economy. and lingering worries here over the federal reserves looming plans to trim back on stimulus in the u.s. economy. the market turmoil today also sent the yield on the benchmark ten-year treasury bond to 2.65%, up a full percentage point in a few weeks before moving lower. >> why does china matter so much to u.s. investors? mr. mcdonald, welcome. good to have you with us. we're just a half hour program, my first question, you could spend an hour on it, i'll just ask you, what's going on in china. and why do u.s. markets and investors need to pay attention to it? >> we'll make a quick answer
here. bottom line is that in china, have you a system which has been investment led. the new team has decided to change that. they're going to pump more structural reforms into the economy. they're going to reduce some of the liquidity that's been pumped into the system. they want more accountability from the banks. you also have a question of how credible is this economic team going-forward. you have a combination of factors which is really kohlessed right about now to make investors very nervous. china after all is the second largest economy on the planet. they own 1.2 or 1.3 trillion of u.s. treasuries in most major u.s. corporations, do trade with china. so what happens in china is something that is of keen concern here in the u.s. to everybody. >> well, are things unraveling in china, scott? most people when you say china, they think of this growth
engine, lots of construction going on there, lots of money, and lots of benefits to our economy. and to consumers and businesses. is it unraveling? >> i don't think it's unraveling, there's still a lot of positives in the chinese economy, you're sitting on 3.3 trillion of foreign exchange reserves, you still are one of the most powerful export machines on the planet. it is still the industrial workshop of the world. but what is problematic is, you've had this long spurt of economic growth from 1999 to 2012, chinese economy grew around 9.9%. what you're doing is putting the brakes on that growth here. and growth probably over the next five years will slow to 6 to 7.5% growth. and what that means is, a lot of parts of the economy that have done well are suddenly finding themselves with a very bumpy ride. there are going to be real challenges ahead in the next couple years as they sort the economy out in china.
>> i don't mean to overplay the analogy here, it sounds like what's going on in the united states in terms of a transition in monetary policy, is precisely what seems to be going on over in china. and just as we have had an awful lot of debt fuelled growth in this country. so have they in china. now they want to substitute debt fuelled growth, substitute really demand fuelled growth for debt fuelled growth. >> absolutely. in essence, what the new government in china's doing is take ing the punch bowl of liquidity away from the party. as we all know without a punch bowl, a lot of parties die. and this is the issue all of a sudden the chinese are facing is okay, fine, we have to have more organic growth. we have to move away from just large state corporations that hog credit markets 37 we need to have more entrepreneurs in the economy. there's a lot of things that need to be corrected there, and i don't see china totally unraveling.
but like i said, it's -- growth is going to be slower. the other aspect is, this government does not have a lot of room to maneuver. and by that, i mean, it's real simple. that they have to maintain credibility on one side, but they have to make the structural changes on the other as they reduce liquidity. >> we have to leave it there, mr. mcdonald. head of economic research at mc asset management holdings. >> like the u.s. and chinese markets moving in tandem as they face similar challenges, two giant software rivals are finding its better to work together to battle a common problem. microsoft and oracle are now teaming up to take on the cloud computing revolution. all this is coming at the same time that microsoft prepares to reorganize itself. john fort is live with us now in silicon valley with more. >> we knew this was going to be a partner ship between microsoft and oracle, it's maybe a bit deeper and more immediate than a lot of us expected when they
announced it today. the two companies agreed to make it much easier to run oracle's software in microsoft's cloud. here's what each side gets out of it, this should accelerate microsoft's cloud and virtualization businesses, because enterprise customers who run oracle now have a much easier path to the cloud. oracle's going to support fully its software including java on microsoft, let people move their licenses over. for oracle, should keep some people from spending less on oracle's database, maybe testing out other options like microsoft as they move to the cloud. it makes it a bit easier for oracle to sell the cloud to a bigger group of customers. oracle already has a similar arrangement with amazon. it helps. what's at stake here, for microsoft, making it 5% of the server and tools business, which is $20 billion a year. they're growing pretty fast. all of this comes ahead of what we expect to be a reorganization
of microsoft, where the cloud takes a more prominent role. microsoft cloud technologies are growing nicely, while pc sales suffer. the current structure was put in place about 11 years ago, when windows and office products were pretty strong. what's not at all clear here is whether this is going to be a major reorg that blows up the entire structure, or a minor one that shuffles products within the same basic structure. either way, a big deal as microsoft tries to adjust in this cloud era. >> a lot to look forward to. a big victory for generic drug makers from the highest court in the land, in a 5-4 ruling, the supreme court decided that makers of generic drugs cannot be sued in state courts for a drug's design defects if federal officials approve the original brand name version that the generic medication is based on. bankers made less money last year, that's what the financial times analysis found after banks were forced to react to investor
and regulatory pressures. the total average pay awarded to the chief executives of 15 major banks fell to 11 and a half million dollars in 2012. 10% less than the previous year. someone like jp morgan's jamie diamond, was cut by a fifth. the study also noted that the ceo from wells fargo and hsbc and credit suisse got increases in their paychecks. bank ceo's may not be earning as much. and american favors aren't saving as much either. fewer than 1 in 4 americans has enough in emergency savings to cover six months of lives expenses. the survey also says, half of all americans have less than three months expenses saved up. and 27% have no emergency funds whatsoever. our crude oil prices fixed, the ftc wants to know.
opening a formal investigation into how prices of crude and other petroleum based products are set. regulators are looking to scrutinize the way companies report oil prices, help determine how much raw materials cost on the open market. good news about gasoline costs, prices at the pump are down 4 cents a gallon over the past two weeks. they now average 3.60 a gallon nationwide for regular grade fuel. that's largely because some midwest refineries that were offline are now back and fully operational. a string of problems with boeing 787 dream liner have become more of a nightmare for company officials. after being grounded for four months earlier this year, there have been three troubles incidents in the past week, involving boeing's newest and largest passenger jet. now the company is monitoring every flight of its 150 dream liners from a special operations center. examining data to make the
aircraft safer. phil lebeau has more. >> more boeing 787 dream liners enter service around the world, there are more questions about what kind of data and performance metrics boeing and the airlines are hearing back from those planes as they're making those flights. that's why we're here in the control center, where a half dotz analysts are monitoring dream liner flights around the world 24-7. a number of the dream liners are flying over in europe right now, some more flights up here, this is the most interesting chart in the room. up here is every single dream liner that's flying, and it's color coded in terms of whether there's a problem with the flight. green means there's no problem. and most of the time there's a red mark up here. there's a problem with the plain that might need maintenance. the whole idea is to have constant data and feedback for the planes coming in here for analysis. there were two flights that were diverted last week, due to an oil leak issue. a number of people were
wondering, did boeing know immediately what the problem was? turns out they did know. and they were in constant contact with the airlines when that issue came up. >> any time you have a diversion or an air turn back, those are events that we look at closely and seriously. when you put it in context of a flying fleet. those kinds of things happen every day. they're all part of the system that makes aviation so safe. >> boeing says this center is the benchmark for future planes. the 737 max will have an operations center similar to this. this is how it's going to be in the future when it comes to commercial airplanes. constant data from the plane to the staff down here to the airlines. from the 787 operations control center, phil lebeau nightly business report, everitt washington. some employers and insurance carriers are trying out a new way to pay for health care. and it could impact your next trip to the doctor or hospital. but first, the day's worst performing stocks on the dow.
neiman marcus is going public. the final paperwork to begin selling shares in the company once again, looking to raise $100 million with its initial public stock offering. the private equity firm's tpg capitol paid 5 billion for neiman-marcus, about eight years ago, and the retailer's value is estimated around $8 billion according to some reports. a sour day for apple investors, that's where we begin our market focus tonight. the stock traded below $400 a share for the first time since april. one reason, jeffrey's analyst believes apple will slash its
iphone orders for the third or fourth quarters. the analyst cited various iphone inventory checks. shares closed $400. that's a drop of more than 2.5%. kohl's stocks slumped after the supreme court said it was a push by the epa to save a clean air regulation. this regulation limits power plant emissions that blow across state lines. at the close, the cliff's natural and peabody lost 7%. alpha natural down 8, and consol energy off by 6%. allergen also having a rough day. their treatment for dry eye syndrome could face competition sooner than expected. a generic version of allergen's drug, it's second biggest revenue producer could be approved without a requirement for testing in humans. shares finished the day down more than $10 a share to 81.99.
worst performing stock of all 500 in the s&p 500. different story for isses pharmaceuticals, that stock dropping from results of its cardiovascular drug. the drug could help lower diabetic's risk for heart disease. shares of isses up 29%, to $28.42. and there's a deal in the health care sector. tenet is buying vanguard health systems for about $1.7 billion. the acquisition will expand tenet's reach into new markets as more people gain insurance coverage. both stocks closed hire, tenet up 4% to $43.73. vanguard sored 67% to $20.70. how much you pay for a hospital stay or a doctor's visit could be changing. some employers are telling workers that from now on, their company health plan will pay only a fixed amount for medical
tests and surgical procedures. one giant california firm is experimenting with this strategy, is the california public employee's retirement system. will other companies do the same? joining us now to talk about this, james robertson, professor of health economics at berkeley's school of public health. most people would be happy to know that health care costs are going to be coming down in one way or another. tell us what you think are the pros and cons of this california pilot program. is this something that works as a benefit of consumers as well as businesses? >> what employers have been noticing is that for the same sorts of procedures, different doctors and hospitals are charging radically different prices. the cost to the employer in this case can be dramatic without any improvement in quality or outcome for the patient. cal pers, safeway and a variety of large employers have
developed reference pricing by which they will pay a certain amount for a particular procedure. and that amount covers the costs at a wide variety of procedures, but not at the most expensive, if the patient wants to go to a more expensive hospital or ambulatory surgery center, the patient has to pay the full difference by him or herself. >> it may rate lower the overall costs to the carrier, to the employer. it might, if you elect, raise your cost if you chose to go to one of the hospitals that doesn't buy into this pricing program. isn't this, professor robertson, fundamentally what medicare already does? they say we have a certain set fee that we pay for this procedure or this kind of doctor time, and that's one of the reasons why with their pricing power, their prices or costs are lower than what most insurers or certainly people in the private market pay? >> medicare is able to pay less
than private insurers because it's so big that the hospitals have to accept what medicare's willing to play as to what medicare will pay in full. private insurers do not have that kind of leverage, they negotiate with hospitals and try to get the best prices they can. frankly, the hospitals have merged, the hospital systems have a lot of bargaining power, and what they found in california, they represent public employees, state of california, cities and municipalities, is that they were paying prices that ranged from $20,000 up to $120,000 for the same procedure, which was knee or hip replacement surgery. so what they said, they netted a benefit design put in, which said, we will pay up to $30,000. and if you, the member want to go to a hospital that charges above 30,000, we will tell you which ones are which. then that's fine. you have to pay the difference
yourself. that way cal pers pays less and takes less out of the paychecks of employees. >> we've been talking a lot about cost. what about quality, that's the question i'm sure a lot of employees will have, that -- so we get the price down, what is going to be the clinical outcome for me with that procedure or that surgery? and is there anyway you can really measure clinical outcome? and quality? >> there are a variety of ways of measuring quality, all of which are limited, and that's a standard problem in health care. what they did in this case, was to use the available quality measures, to ensure the cheaper hospitals was no worse than the more expensive hospitals. that's a standard finding in health care. the higher price does not equal higher quality. and they made sure brand name
hospitals were on the cheaper half, such as stan forward, cedars-sinai, other famous hospitals in the california market. >> it seems like a lot of issues to be worked out. very interesting concept. coming up on the program, from cook wear to furniture, to macy's and target, paula deen had a multimillion dollar empire. what will be the fallout for the products and companies that bear her name. first, we'll take a look at how commodities treasuries and securities fared today. the best performing stock of the year wasn't always the success story it is right now.
julia bors step takes a look at netflix which a lot more people are watching and a lot of investors are buying. >> netflix is the best performing stock this year. up 131%. it's come a long way. up over 300% from the summer of 2011, after the company split its streaming video business from the less popular dvd rentals. it quickly abandoned the name change, quickster, the name change sent the stock plummeting 83% in less than a month. >> lots of companies make mistakes. i think what's unique about netflix, their ceo was willing to admit the mistake and reverse things quickly. >> reporter: netflix's big push into originals that really convinced consumers and investors that the $8 a month
subscription was worth the investment. this year the company has rolled out three original series, to huge critical and fan response. house of cards, hemlock grove and arrested development, with more in the works. >> we're really looking for shows that are unique in some way, and that's really helping us with the international expansion and with the domestic growth. >> netflix was han striking a range of content deals, from disney to dreamworks animation for 300 new hours of exclusive programming. >> we need to see iconic content out of netflix, that's what's going to give them leverage as they deal with content creators, so this is a very important next phase of netflix's development. >> competition is rising. amazon is pouring money into content for its streaming alternative, so far there's been no sign of impact on netflix's business. for nightly business report, julia borsten in los angeles.
there's another big comeback on the way, twinkies will be back on store shelves july 15th, along with ho-ho's, ding dong's and cupcakes. the new owners, private equity firm, apollo global management promise the new twinkies will taste exactly like the old ones. more trouble today for paula de deen, she's scrambling to save her career and lucrative endorsement deals after testifying in a discrimination lawsuit that she used racial slurs. so are apologies enough, and can she and her brand survive? courtney reagan gets some answers. >> there might not be enough butter or sugar in the world to help paula deen's image. she's used racial slurs and tolerated discriminatory jokes in her business.
>> no one is saying she's racist, but the racism element is part of the story, and the injection of race as an element to this controversy, makes it that much more problematic. >> dean has posted three video apologies online, but it was not enough for the food network, which has chosen not to renew her contract for her two cooking shows when it expires this month. beyond her food network contract, paula deen has product deals with many companies, from big pharma to big box retail. her name is associated with products sold by novo-nortis and qvc. many of the companies are evaluating their relationship with the southern chef. paula deen's celebrity isn't just about her food, it's also about her marketable persona. racial slurs strike at the very heart of that golden image. in a statement, qvc says, we
are closely monitoring these events and the ongoing litigation, we're reviewing our business relationship with miss deen and in the meantime, we have no immediate plans to have her appear on qvc. sears holding says it's exploring next steps as they pertain to miss deen's products. smithfield foods is terminating their relationship with paula deen. it's important that our values and that of our spokespeople are aligned. marshall cohen estimates paula deen's empire is worth $6.5 million annually for combined retail and contract revenues. forbes puts her net worth at $17 million. that's before the latest controversy started boiling. for nightly business report, i'm courtney reagan. and finally, we want to hear from you, tell us which small and mid cap stocks would you like our market monitor guests to talk about this friday.